Wednesday, November 17, 2010

Used Car Prices Reach Record High in October

Used car prices reached a record high in October according to Manheim Consulting's Used Vehicle Index (see chart above) and also Edmunds.com, which reported the average used car price reached a record high of $18,570 last month. From a CNN article:

"According to Karl Brauer, an analyst for automotive website Edmunds.com, those preferring used cars over new fall into two categories: buyers who are forced to economize and others who can afford new but decide to hold off because "there's a bit of a stigma to spending." Or, as Tom Webb, chief economist for Manheim Auto Auctions, put it: "It's cool to be frugal."

Here are some of the factors reported by CNN that have pushed used car prices to record levels:

1.Improvements in design, materials and manufacturing mean that today's vehicles can be operated safely longer than ever, which helps used vehicles retain their value longer.

In its monthly release on vehicle sales, Manheim Consulting reports that in addition to a healthy used car market, "new vehicle sales suggest a solidifying recovery."

It's also important to recognize that U.S. automakers like Ford have been significantly more profitable in 2009 ($2.7 billion profit) and 2010 ($6.4 billion profit in the first three quarters of 2010), even with significantly fewer units sales than in 2008 when it lost almost $15 billion and 2007 when it lost $2.7 billion. The focus on cost reductions over the last several years (e.g. getting hourly labor costs down from $78 to about $52) are now translating into strong profits for Ford and GM and have helped the U.S. automakers experience a strong, and ongoing rebound.

Update: According to CNBC, GM made a profit of $3,000 per vehicle in the third quarter of 2010.

4 Comments:

Interesting that CNN missed the impact of Cash for Clunkers on used car prices. Via Edmunds.com this past August:

Car buyers on average paid $1,800 more for a used vehicle in July than they paid a year ago at this time, according to Edmunds.com data. That's a 10.3 percent increase, bringing the average cost of a 3-year-old vehicle to $19,248. The price of a Cadillac Escalade spiked nearly 36 percent. "A lack of confidence in the economy is driving more people to used cars, putting upward pricing pressure on a limited supply of vehicles," said Joe Spina, a senior analyst for Edmunds.

There's a tricky aspect to this analysis, because last summer was marked by a used-car buying frenzy spawned by the Cash for Clunkers program. Spina said the effects of that program are hard to isolate precisely. "So many economic factors affect automobile sales and prices. It's believed that the program delayed purchases prior to the program and also pulled sales forward while in place," he said. "The program also eliminated inventory of older vehicles that were traded and then scrapped." After the jump, take a look at the vehicles whose prices moved the most this July. The model years have been averaged. You can also get some advice on how to proceed in a (relatively) pricey used-car market.

Spina said that at this time last year, a troubled economy had consumers buying less- expensive fuel-efficient vehicles and trading in "gas guzzlers" through Cash for Clunkers (more formally known as the Car Allowance Rebate System). "Now, those who need trucks and large SUVs are buying them and in many cases are turning to used vehicles as a way to save money," he said. "Prices are high because this demand comes at a time when inventory is low as a result of the current shortage of lease returns and trade-ins for vehicles of this type." And, he said, while prices are indeed very high now, last year's prices were low, making the gains even more dramatic.

How do supposedly competent news organizations keep missing fundamental things like this in their reporting? Especially when the sources they cite are the same ones?

Interesting that CNN missed the impact of Cash for Clunkers on used car prices. Via Edmunds.com this past August:

Car buyers on average paid $1,800 more for a used vehicle in July than they paid a year ago at this time, according to Edmunds.com data. That's a 10.3 percent increase, bringing the average cost of a 3-year-old vehicle to $19,248. The price of a Cadillac Escalade spiked nearly 36 percent. "A lack of confidence in the economy is driving more people to used cars, putting upward pricing pressure on a limited supply of vehicles," said Joe Spina, a senior analyst for Edmunds.

There's a tricky aspect to this analysis, because last summer was marked by a used-car buying frenzy spawned by the Cash for Clunkers program. Spina said the effects of that program are hard to isolate precisely. "So many economic factors affect automobile sales and prices. It's believed that the program delayed purchases prior to the program and also pulled sales forward while in place," he said. "The program also eliminated inventory of older vehicles that were traded and then scrapped." After the jump, take a look at the vehicles whose prices moved the most this July. The model years have been averaged. You can also get some advice on how to proceed in a (relatively) pricey used-car market.

Spina said that at this time last year, a troubled economy had consumers buying less- expensive fuel-efficient vehicles and trading in "gas guzzlers" through Cash for Clunkers (more formally known as the Car Allowance Rebate System). "Now, those who need trucks and large SUVs are buying them and in many cases are turning to used vehicles as a way to save money," he said. "Prices are high because this demand comes at a time when inventory is low as a result of the current shortage of lease returns and trade-ins for vehicles of this type." And, he said, while prices are indeed very high now, last year's prices were low, making the gains even more dramatic.

How do supposedly competent news organizations keep missing fundamental things like this in their reporting? Especially when the sources they cite are the same ones?

"According to CNBC, GM made a profit of $3,000 per vehicle in the third quarter of 2010."

Hey, Bailout Bob Corker said that the American public buying out bankrupt GM would be a good deal for us! These profits coupled with the IPO where "we" sold "our" company back to "us" should mean those dividend checks are in the mail, right?